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Modern Islamic Banking by Natalie Schoon

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CHAPTER 16The Future

The principles underlying Islamic finance such as profit and loss sharing, justness in exchange, transparency and the prohibition of usury go back a long time, and are not just associated with Islamic finance. Early philosophers debated the same issues, and during the nineteenth century the UK implemented an anti-usury law for a while. Islamic finance has remarkable similarities with what is known as merchant banking, a way of doing business that has come to be seen as old fashioned and conservative. Given the 2007 and 2008 market turmoil, banks may well have to reconsider their approach to lending and take some of the more old-fashioned principles such as “do not lend to those who cannot afford the payment” into consideration again.

Faith-based banking is not a new phenomenon, but rather one that has been around for a long time. Every religion has an impact on society, and many religious beliefs have found themselves incorporated into the banking system for at least some time during the history of finance. In addition, it does not just appeal to those of a particular religion. The application of principles of fairness and justness is attractive to a large and diverse investor and depositor base, regardless of religion. On the other hand, faith-based banks are typically small compared to their conventional counterparts, with only a fraction of the balance sheet size. Although the interest in faith-based and socially responsible investing exists, it is expected ...

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